The concept of guanxi is presumably foreign to most of us. Otherwise, why would it be such a topic of conversation when you start asking questions about China?
Guanxi is the term that describes personal relationships that a person uses to get ahead. Here in the US, I guess we’d call it networking. You tap those you know and trust to get information, make contacts, find business. In China that might involve getting the licensing you need, finding the housing or business space you want, even obtaining the financial backing your company requires.
In a Sourcingmag.com article, China expert David Scott Lewis had this to say:
I call it, "The Dancing Envelope." You sit at a table. You pull out your envelope and put it down. Ten minutes later it’s there. Ten minutes later, it’s there. Fifteen minutes later it’s here. And then 10 minutes later it’s in somebody’s briefcase. You watch the envelope move around the table and then it gets in the guy’s brief case and that is the payment.
From that, I had the impression that it was closely tied to bribery.
So I asked a Brit expat sitting across the table from me to explain it from his perspective. I didn’t take notes, so if I get it wrong, blame it on brain overload. He had a lot to say about a lot of stuff.
Guanxi is simply making sure you take care of the people you meet along the way so that they’ll do the same for you. In some way it’s going to involve compensation — especially to officials (of which there are, apparently, many in China, at the local, provincial and national levels). He likens this to the way Americans do business on golf courses, provide a pair of tickets to a ball game or take somebody out for a nice lunch or dinner. Maybe it’s not cash being passed along, but there’s an expense to it all the same.
When I mentioned that it’s against the law for companies to make bribes to public officials, so how do American companies get around that snafu, he explained that it was pretty easy actually.
It’s fairly standard to hire an "agent" as consultant to contact officials or high-level company executives. What those agents do, and how they do it, is their business.
As my brother — and fellow traveler — was pointing out to me, they may be completely ethical, so you can’t assume all transactions are shady.
According to him, companies don’t have the time or resources to figure out how to work through the labyrinthine government, so they hire someone who knows that stuff. If they know how to work the system, or how to get to decision makers and get favorable decisions, that’s part of business.
Still sounds fishy to me. But then I’m not trying to get a foot in the door of the billion-plus-person market that is China. Maybe if I were more ambitious, I’d buy into the practice of guanxi too — and be making my mark somewhere in the East instead of blogging.
But as Lewis also said in that interview:
My concern about guanxi [literally, "relationships"], for instance, isn’t that it’s immoral or unethical — it’s inefficient. As the country grows, it’s not likely that my cousin’s best friend is the guy that we should back; but he is the guy that is going to give more of a kickback to me and my cousin, so he gets the contract. This is not efficient for a country that is growing at the size it’s at, and government forces recognize it…
Perhaps in 50 years the concept will be considered as antiquated as bound feet.